<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 0-16683
TECHNOLOGY FUNDING SECURED INVESTORS II
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(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3034262
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
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(Address of principal executive offices) (Zip Code)
(650) 345-2200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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No active market for the units of limited partnership interests ("Units")
exists, and therefore the market value of such Units cannot be
determined.
<PAGE>
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Investments:
Notes receivable, net (cost basis
of $3,379,270 in 2000 and 1999) $2,651,270 2,651,270
Equity investments (cost basis
of $3,042,246 in 2000 and 1999) 945,281 945,281
--------- ---------
Total investments 3,596,551 3,596,551
Cash and cash equivalents 80,081 38,290
Restricted cash 16,500 16,500
Due from related parties -- 11,197
Other assets 47,681 63,030
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Total assets $3,740,813 3,725,568
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 48,824 70,718
Due to related parties 20,518 --
Other liabilities 10,809 10,809
--------- ---------
Total liabilities 80,151 81,527
Commitments and contingencies
(Notes 2, 3, 4 and 8)
Partners' capital:
Limited Partners (150,570 Units outstanding) 3,707,458 3,707,457
General Partners (46,796) (63,416)
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Total partners' capital 3,660,662 3,644,041
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Total liabilities and partners' capital $3,740,813 3,725,568
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
-----------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Short-term investment interest $ 254 188 481 373
------- ------- ------- -------
Total income 254 188 481 373
------- ------- ------- -------
Costs and expenses:
Management fees 17,784 28,149 36,003 57,168
Operating (reimbursements) expenses:
Administrative and investor services 566 93,565 40,958 171,419
Investment operations (140,378) 35,673 (128,127) 71,807
Professional fees 10,364 21,721 10,836 34,665
Computer services 8,149 19,052 24,190 37,215
------- ------- -------- -------
Total operating (reimbursements)
expenses (121,299) 170,011 (52,143) 315,106
------- ------- -------- -------
Total (reimbursements) costs
and expenses (103,515) 198,160 (16,140) 372,274
------- ------- -------- -------
Net realized income (loss) 103,769 (197,972) 16,621 (371,901)
------- ------- -------- -------
Change in net unrealized fair value
of equity investments -- (42,850) -- (42,850)
------- ------- -------- -------
Net income (loss) $ 103,769 (240,822) 16,621 (414,751)
======= ======= ======== =======
Net income (loss) per Unit $ 0.57 (1.59) 0.00 (2.73)
======= ======= ======== =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
-----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 481 373
Cash paid to vendors (31,342) (116,384)
Cash received from (paid to) related
parties, net 72,652 (267,344)
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Net cash provided (used) by
operating activities 41,791 (383,355)
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Cash flows from investing activities:
Repayments of secured notes
receivable -- 678,037
------ -------
Net cash provided by
investing activities -- 678,037
------ -------
Net increase in cash and
restricted cash 41,791 294,682
Cash and restricted cash at
beginning of year 54,790 45,336
------ -------
Cash and restricted cash at June 30 $96,581 340,018
====== =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
2000 1999
---------- ---------
<S> <C> <C>
Reconciliation of net income (loss) to
net cash provided (used) by operating
activities:
Net income (loss) $16,621 (414,751)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Change in net unrealized fair value of
equity investments -- 42,850
Changes in:
Accounts payable and accrued expenses (21,894) (3,064)
Due to related parties 31,715 (2,441)
Other assets 15,349 (5,906)
Other changes -- (43)
------ -------
Net cash provided (used) by operating
activities $41,791 (383,355)
====== =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
----------------------------------------
1. General
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In the opinion of the Managing General Partner, the accompanying interim
financial statements reflect all adjustments necessary for a fair
presentation of the financial position, results of operations, and cash
flows for the interim periods presented. These statements should be read
in conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1999. Allocation of income and loss to Limited and General
Partners is based on cumulative income and loss. Adjustments, if any, are
reflected in the current quarter balances.
The Partnership is scheduled to terminate on December 31, 2000. If no
further action is taken by the General Partners before this termination
date, the Partnership will be liquidated in accordance with the Partnership
Agreement. The General Partners expect to request that the Partnership
assets be transferred to a liquidating trust (the "Trust") to continue the
management and sale of the remaining Partnership assets and the liquidation
of its obligations. Partners would have beneficial interests in the Trust
equal to their individual interests in the Partnership.
2. Financing of Partnership Operations
-----------------------------------
The General Partners have made loans to the Partnership to finance its
recurring losses from on-going operations. The Partnership has very
limited cash resources and primarily illiquid assets. The General Partners
are under no obligation to continue the financing of the Partnership's
daily operations and may elect to discontinue such support at any time
during the remaining life of the Partnership.
3. Fair Value of Investments
-------------------------
The Partnership's investments are valued at fair value as determined in
good faith by the Managing General Partner in the absence of readily
available market quotations. At this stage of the Partnership's life, the
holdings in the Partnership's portfolio are limited to troubled companies
for which any estimate of fair value is highly subjective. The estimates
made by the Managing General Partner give consideration to each company's
current operating activities, underlying financial condition, prospects for
liquidation events, and other factors. The estimated fair value of
$3,596,551 at June 30, 2000 may differ significantly from a value that
would have been used had the ultimate realization of the investments been
known.
In August 2000, the General Partners engaged an independent third party to
appraise the Partnership's three remaining portfolio companies. It is
possible that the resulting appraised values will differ significantly from
the investment fair values reported in these financial statements. Any
adjustments based on the independent third party appraisal will be recorded
in the period the appraisal is received.
4. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party costs for the six months ended
June 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Management fees $36,003 57,168
Reimbursable operating expenses, net (76,940) 207,735
</TABLE>
Certain reimbursable expenses have been allocated and accrued based upon
interim estimates prepared by the Managing General Partner and are adjusted
to actual cost periodically. At June 30, 2000, $14,880 was due to related
parties for such expenses, compared to $11,197 due from related parties at
December 31, 1999. In the second quarter of 2000, the Managing General
Partner refunded the Partnership $199,996 for investment management
expenses previously billed by the General Partners in 1998 and 1999.
Amounts payable for management fees were $5,638 and $0 at June 30, 2000 and
December 31, 1999, respectively.
5. Notes Receivable, Net
---------------------
A complete listing of the Partnership's notes receivable at December 31,
1999, is included in the 1999 Annual Report on Form 10-K. There was no
notes receivable activity from January 1 through June 30, 2000.
6. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December 31,
1999, is included in the 1999 Annual Report on Form 10-K. There was no
equity investment activity from January 1 through June 30, 2000.
7. Cash and Cash Equivalents
-------------------------
At June 30, 2000, and December 31, 1999, cash and cash equivalents
consisted of:
<TABLE>
<CAPTION>
2000 1999
-------- ---------
<S> <C> <C>
Demand and brokerage accounts $79,547 36,148
Money market accounts 534 2,142
------ ------
Total $80,081 38,290
====== ======
</TABLE>
8. Commitments and Contingencies
-----------------------------
The Partnership is a party to financial instruments with off-balance-sheet
risk in the normal course of its business. Generally, these instruments
are equipment financing commitments or accounts receivable lines of credit
that are outstanding but not currently fully utilized by a borrowing
company. As they do not represent current outstanding balances, these
unfunded commitments are properly not recognized in the financial
statements. The Partnership had no unfunded commitments for equity
investments as of June 30, 2000.
The Partnership, together with an affiliated partnership, is a guarantor
for a note payable of a portfolio company. The Partnership's share of the
guarantee is $247,500.
In December 1997, the Partnership together with an affiliated Partnership,
guaranteed equipment financing for a portfolio company by depositing
$50,000 in an escrow account with the lending institution. The Partnership
funded $16,500 of this deposit. If the portfolio company fails to repay
the line of credit, the Partnership may forego the escrowed funds.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
-------------------------------
During the six months ended June 30, 2000, net cash provided by operating
activities totaled $41,791. The Partnership paid management fees of
$30,365, received a refund of previously billed operating expenses of
$199,996 from the Managing General Partner and reimbursed related parties
for operating expenses of $96,979. Other operating expenses of $31,342
were paid and interest income of $481 was received.
Cash and restricted cash at June 30, 2000, were $96,581. The Partnership
is scheduled to terminate on December 31, 2000. If no further action is
taken by the General Partners before this termination date, the Partnership
will be liquidated in accordance with the Partnership Agreement. The
General Partners expect to request that the Partnership assets be
transferred to a liquidating trust (the "Trust") to continue the management
and sale of the remaining Partnership assets and the liquidation of its
obligations. Partners would have beneficial interests in the Trust equal
to their individual interests in the Partnership.
The General Partners have made loans to the Partnership to finance its
recurring losses from on-going operations. The Partnership has very
limited cash resources and primarily illiquid assets. The General Partners
are under no obligation to continue the financing of the Partnership's
daily operations and may elect to discontinue such support at any time
during the remaining life of the Partnership.
The Partnership's investments are valued at fair value as determined in
good faith by the Managing General Partner in the absence of readily
available market quotations. At this stage of the Partnership's life, the
holdings in the Partnership's portfolio are limited to troubled companies
for which any estimate of fair value is highly subjective. The estimates
made by the Managing General Partner give consideration to each company's
current operating activities, underlying financial condition, prospects for
liquidation events, and other factors. The estimated fair value of
$3,596,551 at June 30, 2000 may differ significantly from a value that
would have been used had the ultimate realization of the investments been
known.
In August 2000, the General Partners engaged an independent third party to
appraise the Partnership's three remaining portfolio companies. It is
possible that the resulting appraised values will differ significantly from
the investment fair values reported in these financial statements. Any
adjustments based on the independent third party appraisal will be recorded
in the period the appraisal is received.
Results of Operations
---------------------
Current quarter compared to corresponding quarter in the preceding year
-----------------------------------------------------------------------
Net income was $103,769 for the quarter ended June 30, 2000, compared to a
net loss of $240,822 for the quarter ended June 30, 1999. The increase in
net income was primarily the result of a refund of investment management
expenses discussed below.
Total operating expense reimbursements were $121,299 in the quarter ended
June 30, 2000, compared to operating expenses of $170,011 for the
corresponding period in 1999. In the second quarter of 2000, the Managing
General Partner refunded the Partnership $199,996 for investment management
expenses previously billed by the General Partners in 1998 and 1999. If
these expenses had not been billed in prior years, operating expenses for
the three months ended June 30, 2000 and 1999 would have been $78,697 and
$140,919, respectively. The decrease is attributable to decreased
investment activity and the related administrative costs.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
Current six months compared to corresponding six months in the
---------------------------------------------------------------
preceding year
--------------
Net income was $16,621 for the six months ended June 30, 2000, compared to
a net loss $414,751 for the corresponding period in 1999. The increase in
net income was substantially due to a refund of investment management
expenses discussed below.
Total operating expense reimbursements were $52,143 in the six months ended
June 30, 2000, compared to operating expenses of $315,106 for the
corresponding period in 1999. In the second quarter of 2000, the Managing
General Partner refunded the Partnership $199,996 for investment management
expenses previously billed by the General Partners in 1998 and 1999. If
these expenses had not been billed in prior years, operating expenses for
the six months ended June 30, 2000 and 1999 would have been $147,853 and
$261,750, respectively. The decrease is attributable to decreased
investment activity and the related administrative costs.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed by the Partnership during the
quarter ended June 30, 2000.
(b) Financial Data Schedule for the six months ended and as of June
30, 2000 (Exhibit 27).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING SECURED INVESTORS II
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: August 14, 2000 By: /s/Charles R. Kokesh
-------------------------------------
Charles R. Kokesh
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of
Technology Funding Inc. and
Managing General Partner of
Technology Funding Limited
